China to rein in growth of green energy industry

Solar panels on display at a recent clean energy event in Beijing. China has been the single largest developer of clean energy technology for eight years.
Solar panels on display at a recent clean energy event in Beijing. China has been the single largest developer of clean energy technology for eight years.PHOTO: AGENCE FRANCE-PRESSE

Government cutting subsidies for the sector as a result of slowing economy

BEIJING • After installing more wind and solar farms than anywhere else on the planet, China is ratcheting back the pace of growth in an industry that has helped lower the costs of green energy worldwide.

Installations of new wind and solar farms in China are expected to drop 11 per cent next year, from a record high this year, according to Bloomberg New Energy Finance (BNEF). That would be the first decline in the history of the modern renewables business, now a little more than a decade old, for a nation that has provided about a third of the investment for the industry.

After five years of breakneck growth in supply, China's electricity demand is stagnating, along with a pause in the nation's economic expansion. President Xi Jinping's government has started re-calibrating subsidies for the business, a move that's likely to hit the industry's leading manufacturers, Xinjiang Goldwind Science & Technology and Trina Solar.

"China shapes the whole world market," Mr Paolo Frankl, head of the International Energy Agen- cy's renewable energy division, said in an interview.

The move is crucial for renewables because China has been the single largest developer of the technology for eight years. Its demand for panels and turbines has pushed manufacturers to build factories throughout Asia, and the scale of its projects helped bring down the cost of electricity from low-polluting sources everywhere. 

While global clean energy capacity is expected to swell 17 per cent next year, it's still the slowest in at least a decade, according to BNEF, a researcher based in London. China's wind and solar capacity will grow 41.8 gigawatts next year, down from a record 46.9 gigawatts this year, BNEF estimates. A nuclear reactor generally produces a gigawatt of power.

"The insanity in China gave a false sense of security to manufacturers to ramp up new capacity," said Mr Charles Yonts, an analyst at CLSA Asia-Pacific Markets in Hong Kong.

The slowdown could be short-lived. China has a history of working to prop up its manufacturers, and if makers of turbines and photovoltaic panels stumble, the authorities may unleash new incentives. China's current plans for investing in clean power suggest that installations will rise again by 7 per cent in 2018, BNEF estimates.

Mr Jules Kortenhorst, chief executive officer of Rocky Mountain Institute, an energy consultant based in Boulder, Colorado, said: "In the long run,... China is committed to a low-carbon future."

Even so, the fall-off expected for next year is notable because the industry has come to rely on China since it started its rapid expansion early in the last decade. Renewables manufacturers and developers are not accustomed to slow growth and now are facing tougher times, as highlighted by the bankruptcy of Sun- Edison in April.

China's easing stems from a shift in government green policies. Last December, Chinese officials announced they would gradually start curtailing rates paid to wind and solar development starting in the middle of this year.

The lower prices for clean electricity reflect declining construction costs and will be cut again in 2018. The move triggered a flurry of building in the first half by companies pushing to break ground before the lower rates kicked in.

Just how the slump will impact overall company earnings is not clear yet. But the lull may help China digest a building binge in clean energy.

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A version of this article appeared in the print edition of The Straits Times on September 24, 2016, with the headline 'China to rein in growth of green energy industry'. Print Edition | Subscribe